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TMI Blog2016 (9) TMI 708X X X X Extracts X X X X X X X X Extracts X X X X ..... ules. The case was selected for scrutiny, therefore, notices u/s.143(2) and 142(1) of the Income Tax Act, 1961 ( in short "the Act") were issued and served upon the assessee. The Assessing Officer disallowed the interest claimed to the tune of Rs. 53,76,200/- but as the same was not paid to the creditors mainly M/s. Sangam India Ltd.. Therefore, the said interest to the tune of Rs. 53,76,200/- had been added to the income of the assessee. Assessee filed the appeal before the CIT(A), but the CIT(A) confirmed the order on these issues, therefore the present appeal has been filed before us. ITA NO.7462/Mum/2011:- 3. The assessee has raised the following grounds:- 1. Disallowance of Interest - Rs. 53,76,200/- "a) The ld. CIT(A) erred in confirming the disallowance of interest claim without appreciating that the liability to pay interest got crystallized by virtue of MOU with the two creditors which was overdue since long and could not be paid on account of mounting losses in the business and initiation of legal actions by the creditors; therefore, as per the mercantile method of accounting followed, the claim of the Appellant ought to have been allowed. b) The ld. CIT(A) fail ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 29.07.2003 in which the liability to pay the interest has been shown. At the time of examination of the account books, the Assessing Officer wrote the letter dated 12.12.2006 to the M/s. Sangam India Ltd. and in reply M/s. Sangam India Ltd. said that he did not receive any interest from the assessee. The assessee has recorded the said entry in his account books whereas no entry has been recorded in the account book of M/s. Sangam India Ltd. The Assessing Officer took the view that the assessee did not incur any interest expenses for business purpose. He was also of the view that the amount to the tune of Rs. 53,76,200/- was not paid to the M/s. Sangam India Ltd. and this fact was confirmed by the said firm in reply to the notice issued by the Assessing Officer u/s.133(6) of the Act. The contention of the assessee is that he suffered a loss, therefore he was unable to pay loan to the creditors and the matter went into the court and thereafter the assessee settled the matter with the creditors out of court. MOU is on the file which lies at pages 11 to 29 of the paper book. It is a settlement on record vide which the assessee is liable to pay certain amount along with interest. It is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... MOU so entered for payment of principle as well as interest was not acted upon, it means there is no material on record to suggest that actual interest has been paid. The CIT(A) has also pointed out that there is some calculation mistake pertain to last 5-6 years and as per the calculation submitted by the assessee before Assessing Officer, same is different from calculation given in the MOU. However, CIT(A) is not aggrieving with the interest provided for earlier years. As per our considered view, any liability for expenses can be claimed in the year of crystallization. In the instant case assessee had had not claimed interest expenditure in earlier years, however to settle the matter he entered into MOU with creditors to pay the same. The liability to pay interest for earlier year was crystallized during this year only. In view of all the contradictions pointed out by CIT(A), we restore the matter back to the file of Assessing Officer to examine the correctness of the interest so claimed with reference to actual amount due to earlier year. Assessing Officer is also directed to verify if assessee had actually made payment of interest in the subsequent year. If the Assessing Offic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nterest @ 18% for the year 2001-02 Rs.13,58,509/- Balance on 31.3.2002 Rs.89,05,781/- Add Interest @ 16% for the year 2002-03 Rs.14,24,925/- Balance on 31.3.2003 Rs.1,03,30,706/- Add Interest @ 14% for the year 2003-04 Rs.14,46,297/- Balance as on 31.3.2004 Rs.1,17,77,005/- When the said figure was compared by the CIT(A) the same was not found in accordance with the figure mentioned in the books of account. The said letter also speaks that the interest if any was also belonging to the financial year 2000-2001 to onwards but no provision of interest was mentioned in the books of account. In brief the interest which has been calculated and shown in the Profit & Loss A/c. did not match with the annexure 1 of the MOU. No distinguishable material has been placed on record before us. Factually no provision of interest was made in the earlier years when made in view of MOU then the same was not complied with therefore, in view of the said circumstances we are of the view that the CIT(A) has rightly decided the matter correctly and judiciously which does not require to be interfere with at this stage. Accordingly appeal filed by the assessee is dismissed. ITA NO.7462/M ..... X X X X Extracts X X X X X X X X Extracts X X X X
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